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Annual report on remuneration

The Board has established Audit, Remuneration, Risk, Nomination and Governance Committees as principal standing committees of the Board. These committees form a key element of the Group governance framework.

The operation of the Remuneration Committee

Members

  • Anthony Nightingale (the Chairman of the Committee)
  • Kai Nargolwala
  • Philip Remnant

Role and responsibility

The role and responsibilities of the Committee are set out in its terms of reference, which are reviewed by the Committee and approved by the Board on an annual basis, and which can be found on the Company’s website. The Committee’s role is to assist the Board in meeting its responsibilities regarding the determination, implementation and operation of the overall remuneration policy for the Group, including the remuneration of the Chairman and Executive Directors, as well as overseeing the remuneration arrangements of other staff within its purview.

The principal responsibilities of the Committee are:

  • Determining and recommending to the Board for approval, the framework and policy for the remuneration of the Chairman, Executive Directors and other members of the Group Executive Committee;
  • Approving the design of performance-related pay schemes operated for the Executive Directors and other members of the Group Executive Committee, and determining the targets and individual payouts under such schemes;
  • Reviewing the design and development of all share plans requiring approval by the Board and/or the Company’s shareholders;
  • Approving the share ownership guidelines for the Chairman and Executive Directors and other members of the Group Executive Committee, and monitoring compliance;
  • Reviewing and approving individual packages for the Executive Directors and other members of the Group Executive Committee, and the fees of the Chairman and the Non-executive Directors of the Group’s material subsidiaries;
  • Reviewing and approving packages to be offered to newly recruited Executive Directors and other members of the Group Executive Committee;
  • Reviewing and approving the structure and quantum of any severance package for Executive Directors and other members of the Group Executive Committee;
  • Ensuring the process for establishing remuneration policy is transparent and consistent with the Group’s risk framework and appetites, encouraging strong risk management and solvency management practices and taking account of remuneration practices across the Group;
  • Monitoring the remuneration and risk management implications of remuneration of senior executives across the Group, other selected roles and those with an opportunity to earn in excess of £1 million in a particular year; and
  • Overseeing the implementation of the Group remuneration policy for those roles within scope of the specific arrangements referred to in Article 275 of Solvency II.

An annual review of the Committee’s effectiveness was carried out as part of the Board evaluation, as described in more detail in How we operate. The Committee was found to be functioning effectively.

In 2016, the Committee met six times. Key activities at each meeting are shown in the table below:

Meeting Key activities
February 2016

Approve the 2015 Directors’ remuneration report; consider 2015 bonus awards for Executive Directors; consider vesting of the long-term incentive awards with a performance period ending on 31 December 2015; and approve 2016 long-term incentive awards, performance measures and plan documentation.

March 2016

Confirm 2015 annual bonuses and the vesting of long-term incentive awards with a performance period ending on 31 December 2015, in light of audited financial results.

June 2016

Consider performance for outstanding long-term incentive awards, based on the half-year results; review the remuneration of senior executives across the Group, employees with a remuneration opportunity over £1 million per annum and employees within the scope of the Solvency II remuneration rules; consider proposals for new Directors’ remuneration architecture and policy; and review progress towards share ownership guidelines by the Chairman, Executive Directors and other Group Executive Committee members.

September 2016

Review the dilution levels resulting from the Company’s share plans; review proposed new Directors’ remuneration architecture and policy; review proposed 2017 remuneration arrangements ahead of consultation with shareholders; approve the implementation of the remuneration requirements of Solvency II and approve the Remuneration Policy Statement; and review the Remuneration Committee’s terms of reference.

November 2016

Finalise the proposed new Directors’ remuneration architecture and policy and the approach to the shareholder consultation.

December 2016

Review the level of participation in the Company’s all-employee share plans; approve Group Executive Committee members’ 2017 salaries and incentive opportunities; consider the annual bonus and long-term incentive measures and targets to be used in 2017; review an initial draft of the 2016 Directors’ remuneration report; approve the Group Remuneration Policy; and approve the Committee’s 2017 work plan.

Additionally, a number of resolutions in writing were approved by the Committee between these meetings relating to new Executive Directors’ remuneration arrangements and separation arrangements for an Executive Director who stepped down from the Board.

The Chairman and the Group Chief Executive attend meetings by invitation. The Committee also had the benefit of advice from:

  • Group Chief Risk Officer;
  • Chief Financial Officer;
  • Group Human Resources Director; and
  • Director of Group Reward and Employee Relations.

Individuals are never present when their own remuneration is discussed and the Committee is always careful to manage potential conflicts of interest when receiving views from Executive Directors or senior management about executive remuneration proposals.

During 2016, Deloitte LLP was the independent adviser to the Committee. Deloitte was appointed by the Committee in 2011 following a competitive tender process. As part of this process, the Committee considered the services that Deloitte provided to Prudential and its competitors as well as other potential conflicts of interest. Deloitte is a member of the Remuneration Consultants’ Group and voluntarily operates under their code of conduct when providing advice on executive remuneration in the UK. Deloitte regularly meets with the Chairman of the Committee without management present. The Committee is comfortable that the Deloitte engagement partner and team providing remuneration advice to the Committee do not have connections with Prudential that may impair their independence and objectivity. The total fees paid to Deloitte for the provision of independent advice to the Committee in 2016 were £48,050 charged on a time and materials basis. During 2016, Deloitte gave Prudential management advice on remuneration, as well as providing guidance on capital optimisation, digital and technology, taxation, internal audit, real estate, global mobility and other financial, risk and regulatory matters. Remuneration advice is provided by an entirely separate team within Deloitte.

In addition, management received external advice and data from a number of other providers. This included market data and legal counsel. This advice, and these services, are not considered to be material.

During the year, the Company has complied with the appropriate provisions of the UK Corporate Governance Code regarding Directors’ remuneration.

Table of 2016 Executive Director total remuneration ‘The Single Figure’

Download as excel file

£000s   Of which:   Total 2016 remuneration ‘The Single Figure’
2016 salary 2016 taxable benefits* 2016 total bonus Amount paid in cash Amount deferred into Prudential shares 2016 LTIP releases Other payments 2016 pension benefits§

* Benefits include (where provided) the cost of providing the use of a car and driver, medical insurance, security arrangements and relocation/expatriate benefits.

† The deferred part of the bonus is subject to malus and clawback in accordance with the malus and clawback policies.

‡ In line with the regulations, the estimated value of PLTIP releases in 2016 has been calculated based on the average share/ADR price over the last three months of 2016 (£14.86/$37.02). The actual value of PLTIPs, based on the share price on the date awards are released, will be shown in the 2017 report. Tony Wilkey’s LTIP release includes an award which vested on 23 September 2016 (the share price on that date was £14.08) in addition to the awards which vest in 2017.

§ 2016 pension benefits include cash supplements for pension purposes and contributions into DC schemes as outlined in the Pension entitlements section.

¶ Each remuneration element is rounded to the nearest £1,000 and totals are the sum of these rounded figures. Total remuneration is calculated using the methodology prescribed by Schedule 8 of the Companies Act.

Notes

  1. John Foley was appointed to the Board on 19 January 2016. The remuneration above was paid in respect of his service as an Executive Director, other than the LTIP releases which related to his previous role.
  2. Michael McLintock stepped down from the Board on 6 June 2016. The remuneration above was paid in respect of his service as an Executive Director.
  3. Nic Nicandrou’s benefits relate primarily to relocation support under a legacy relocation clause in his contract, being £156,892 to cover taxes due on stamp duty paid in 2015.
  4. Anne Richards was appointed to the Board on 7 June 2016. The remuneration above was paid in respect of her service as an Executive Director. In order to facilitate Anne’s appointment as Chief Executive, M&G , the Company agreed to replace the deferred bonus awards she forfeited on leaving Aberdeen Asset Management. The terms of the replacement award are designed to replicate those of the forfeited awards and further details are set out in the Long-term incentives awarded in 2016 section. In addition, to support Anne’s appointment as Chief Executive, M&G, the Company pays for accommodation in London and travel from Anne’s home in Edinburgh to London totalling £45,493.
  5. Barry Stowe’s bonus figure excludes a contribution of £11,738 from a profit sharing plan which has been made into a 401(k) retirement plan in respect of his role as Chairman & CEO, NABU. This is included under 2016 pension benefits.
  6. To facilitate his move to the UK, Mike Wells’s benefits include relocation support including £330,680 to cover taxes due on stamp duty paid in 2015 and £339,624 to cover mortgage interest. In addition, an amount of £497,748 was paid by the Company to meet a payment on account for US tax on these benefits which, as the tax will be payable in the UK, under the UK and US double tax treaty this amount will ultimately be refunded.
  7. Tony Wilkey’s benefits include costs of £260,917 for housing and a £413,663 Executive Director Location Allowance. The LTIP releases relate to his previous role, prior to his service as an Executive Director.
  8. Barry Stowe and Tony Wilkey are paid in their local currency and exchange rate fluctuations will therefore impact the reported sterling value.
John Foley1 714 134 1,271 763 508 1,781 179 4,079
Penny James 606 83 962 577 385 347 152 2,150
Michael McLintock2 173 70 920 552 368 1,811 43 3,017
Nic Nicandrou3 711 361 1,236 742 494 1,518 178 4,004
Anne Richards4 228 82 1,368 821 547 2,140 57 3,875
Barry Stowe5, 8 820 46 5,229 3,137 2,092 1,168 205 7,468
Mike Wells6 1,081 873 2,151 1,291 860 2,520 270 6,895
Tony Wilkey 7, 8 845 828 1,440 864 576 918 213 4,244
Total 5,178 2,477 14,577 8,747 5,830 10,063 2,140 1,297 35,732

Table of 2015 Executive Director total remuneration ‘The Single Figure’

Download as excel file

£000’s   Of which:  
2015 salary 2015 taxable benefits* 2015
total bonus
Amount paid in cash Amount deferred into Prudential shares 2015 LTIP releases 2015 pension benefits§ Total 2015 remuneration ‘The Single Figure’

* Benefits include (where provided) the cost of providing the use of a car and driver, medical insurance, security arrangements and relocation/expatriate benefits.

† The deferred part of the bonus is subject to malus and clawback in accordance with the malus and clawback policies.

‡ In line with the regulations, the estimated value of PLTIP releases in 2015 has been recalculated based on the actual share/ADR price on the date awards are released, being £13.25/$38.36.

§ 2015 pension benefits include cash supplements for pension purposes and contributions into DC schemes.

¶ Each remuneration element is rounded to the nearest £1,000 and totals are the sum of these rounded figures. Total remuneration is calculated using the methodology prescribed by Schedule 8 of the Companies Act.

Notes

  1. Pierre-Olivier Bouée stepped down from the Board on 31 May 2015. The remuneration above was paid in respect of his service as an Executive Director.
  2. Jackie Hunt stepped down from the Board on 3 November 2015. The remuneration shown above was paid in respect of her service as an Executive Director.
  3. Penny James was appointed to the Board on 1 September 2015. The remuneration above was paid in respect of her service as an Executive Director, other than the LTIP releases which related to her previous role.
  4. Nic Nicandrou’s 2015 benefits relate primarily to a legacy relocation clause in his contract agreed on his appointment and disclosed in the 2009 Directors’ remuneration report. The figure includes costs of £243,750 to cover stamp duty.
  5. Barry Stowe’s 2015 benefits relate primarily to his expatriate status while he was located in Hong Kong in his previous role as Chief Executive, PCA, including costs of £139,405 for housing, £62,586 home leave and a £152,978 Executive Director Location Allowance. In addition, to facilitate his move back to the US, his benefits include relocation support including costs of £110,101 for relocation, shipping and tax return preparation. His bonus figure excludes a contribution of £10,404 from a profit sharing plan which has been made into a 401(k) retirement plan in respect of his role as Chairman & CEO, NABU. This is included under 2015 pension benefits.
  6. Tidjane Thiam stepped down from the Board on 31 May 2015. The remuneration shown above was paid in respect of his service as an Executive Director.
  7. To facilitate his move to the UK, Mike Wells’s benefits include relocation support including an allowance of £200,000 for relocation and shipping, £177,890 for temporary accommodation, £513,750 to cover stamp duty and £56,604 to cover mortgage interest.
  8. Tony Wilkey was appointed to the Board on 1 June 2015. The remuneration above was paid in respect of his service as an Executive Director, other than the LTIP releases which related to his previous role. Tony Wilkey’s 2015 benefits include costs of £140,134 for housing and a £214,169 Executive Director Location Allowance.
  9. Barry Stowe and Tony Wilkey are paid in their local currency and exchange rate fluctuations will therefore impact the reported sterling value.
Pierre-Olivier Bouée1 270 38 0 0 0 316 68 692
Jackie Hunt2 557 76 1,039 623 416 1,688 139 3,499
Penny James3 200 21 318 191 127 369 50 958
Michael McLintock 394 71 2,128 1,277 851 2,676 98 5,367
Nic Nicandrou4 703 377 1,224 734 490 1,798 176 4,278
Barry Stowe5, 9 729 558 3,281 1,969 1,312 2,007 188 6,763
Tidjane Thiam6 455 44 704 422 282 3,382 114 4,699
Mike Wells7 942 1,283 3,223 1,934 1,289 4,290 156 9,894
Tony Wilkey8, 9 433 402 748 449 299 1,597 109 3,289
Total 4,683 2,870 12,665 7,599 5,066 18,123 1,098 39,439

Remuneration in respect of performance in 2016

Base salary

Executive Directors’ salaries were reviewed in 2015 with changes effective from 1 January 2016. When the Committee took these decisions it considered:

  • The salary increases awarded to other employees;
  • The performance and experience of each executive;
  • The relative size of each Director’s role; and
  • The performance of the Group.

Salary increases for the wider workforce vary across our business units, reflecting local market conditions.

To provide context for this review, information was also drawn from the following market reference points:

Executive Role Benchmark(s) used to assess remuneration

John Foley

Chief Executive, UK and Europe

  • FTSE 40
  • International insurance companies

Penny James

Group Chief Risk Officer

  • FTSE 40

Nic Nicandrou

Chief Financial Officer

  • FTSE 40
  • International insurance companies

Michael McLintock

Anne Richards

Chief Executive, M&G

  • McLagan UK Investment Management Survey
  • International insurance companies

Barry Stowe

Chairman & CEO, NABU

  • Towers Watson US Financial Services Survey
  • LOMA US Insurance Survey

Mike Wells

Group Chief Executive

  • FTSE 40
  • International insurance companies

Tony Wilkey

Chief Executive, PCA

  • Towers Watson Asian Insurance Survey

As reported last year, after careful consideration by the Committee, all Executive Directors received a salary increase of 1 per cent. The 2016 salary increase budgets for other employees across our business units were between 3 per cent and 6.5 per cent. No changes were made to Executives Directors’ maximum opportunities under either the annual incentive or the long-term incentive plans.

Download as excel file

Executive Director 2015 salary 2016 salary

Notes

  1. John Foley was appointed Chief Executive, UK and Europe on 19 January 2016. The annualised 2016 salary above was paid in respect of his service as Chief Executive, UK and Europe.
  2. Penny James was appointed Group Chief Risk Officer on 1 September 2015. The annualised 2015 salary above was paid in respect of her service as Group Chief Risk Officer.
  3. Michael McLintock stepped down from the Board on 6 June 2016. The annualised 2016 salary above was paid in respect of his service as Chief Executive, M&G and was pro-rated for the portion of the year for which he was an Executive Director.
  4. Anne Richards was appointed Chief Executive, M&G on 7 June 2016. The annualised 2016 salary above was paid in respect of her service as Chief Executive, M&G.
  5. Barry Stowe was appointed Chairman & CEO, NABU on 1 June 2015. The annualised 2015 salary above was paid in respect of his service as Chairman & CEO, NABU.
  6. Mike Wells was appointed Group Chief Executive on 1 June 2015. The annualised 2015 salary above was paid in respect of his service as Group Chief Executive.
  7. Tony Wilkey was appointed Chief Executive, PCA on 1 June 2015. The annualised 2015 salary above was paid in respect of his service as Chief Executive, PCA.
John Foley1 £750,000
Penny James2 £600,000 £606,000
Michael McLintock3 £394,000 £398,000
Nic Nicandrou £703,000 £711,000
Anne Richards4 £400,000
Barry Stowe5 US$1,100,000 US$1,111,000
Mike Wells6 £1,070,000 £1,081,000
Tony Wilkey7 HK$8,800,000 HK$8,890,000

Annual bonus

2016 annual bonus opportunities

Executive Directors’ bonus opportunities, the weighting of performance measures for 2016 and the proportion of annual bonuses deferred are set out below:

Download as excel file

    Weighting of measures
Executive Director Maximum AIP opportunity
(% of salary)
Deferral requirement Group financial measures Business unit financial/functional measures Personal objectives

Notes

  1. John Foley was appointed to the Board on 19 January 2016. The maximum bonus opportunity shown represents his annual opportunity as an Executive Director, which was pro-rated for the portion of the year for which he was an Executive Director.
  2. Michael McLintock’s annual bonus opportunity in 2016 was the lower of 0.75 per cent of M&G’s IFRS profit and six times annual salary. M&G’s IFRS profit in 2016 was £414 million. Michael stepped down from the Board on 6 June 2016. The maximum bonus opportunity shown represents his annual opportunity as an Executive Director, which was pro-rated for the portion of the year for which he was an Executive Director.
  3. Anne Richards’s annual bonus opportunity in 2016 was the lower of 0.75 per cent of M&G’s IFRS profit and six times annual salary. M&G’s IFRS profit in 2016 was £414million. Anne was appointed to the Board on 7 June 2016. The maximum bonus opportunity shown represents her annual opportunity as an Executive Director, which was pro-rated for the portion of the year for which she was an Executive Director.
  4. Barry Stowe also receives 10 per cent of the Jackson bonus pool.
John Foley1 180% 40% of total bonus 20% 60% 20%
Penny James 160% 40% of total bonus 50% 30% 20%
Michael McLintock2 600% 40% of total bonus 20% 60% 20%
Nic Nicandrou 175% 40% of total bonus 80% 20%
Anne Richards3 600% 40% of total bonus 20% 60% 20%
Barry Stowe4 160% 40% of total bonus 80% 20%
Mike Wells 200% 40% of total bonus 80% 20%
Tony Wilkey 180% 40% of total bonus 20% 60% 20%

2016 AIP performance measures and achievement

Target-setting process

For the financial metrics of the AIP, the performance ranges are set by the Remuneration Committee prior to, or at the beginning of, the performance period based on the annual business plans approved by the Board. These reflect the ambitions of the Group and business units, in the context of anticipated market conditions.

As part of the implementation of Solvency II, a portion of Executive Directors’ 2016 bonuses was determined by the achievement of Solvency II surplus targets, which replaced the IGD capital surplus measure (part of the Solvency I framework). Otherwise no changes were made to the performance measures for the 2016 annual incentive plan.

Also as part of the implementation of Solvency II, the weightings of Penny James’s AIP performance targets (with effect from 2016) were changed so that 50 per cent related to financial targets, 30 per cent related to functional targets and 20 per cent related to personal targets.

Financial performance

The Committee reviewed performance against the performance ranges at its meeting in February 2017; in all of the bonus performance metrics the Group’s 2016 results exceeded the performance required for maximum vesting, other than the Group Solvency II surplus measure, which was between target and maximum.

The Committee also considered a report from the Group Chief Risk Officer which confirmed that these results were achieved within the Group’s and business units’ risk framework and appetite. The Group Chief Risk Officer also considered the effectiveness of risk management and internal controls, and specific actions taken to mitigate risks, particularly where these may be at the expense of profits or sales. The Group Chief Risk Officer’s recommendations were taken into account by the Committee when determining AIP outcomes for Executive Directors.

The performance measures, their weightings and the achievement compared to the performance range, is illustrated below. The performance range (the levels of performance required for threshold, target and maximum bonuses to be paid) for the 2016 Group financial measures will be disclosed in the 2017 Directors’ remuneration report.

2016 AIP performance measures and achievement table content
Personal performance

As set out in our Directors’ remuneration policy, a proportion of the annual bonus for each Executive Director is based on the achievement of personal and, for the Group Chief Risk Officer, functional objectives. These objectives include:

  • The executive’s contribution to Group strategy as a member of the Board;
  • Specific goals related to the business or function for which they are responsible, such as developing product propositions for a new generation of savers and investors; and
  • Progress on major projects which in 2016 included the initial public offering of our Indian joint venture, ICICI Prudential Life, commencing the divestment of our Korean life business and growing our African business to include Zambia.

Performance against these objectives was assessed by the Committee at its meeting in February 2017.

2016 Annual Incentive Plan payments

On the basis of the strong performance of the Group and its business units, and the Committee’s assessment of each Executive Director’s personal performance, the Committee determined the following 2016 AIP payments:

Download as excel file

Executive Director Role 2016 salary1 Maximum 2016 AIP 2016 AIP payment
(% of maximum)
2016 AIP payment

Notes

  1. At 31 December 2016 or on stepping down from the Board if earlier.
  2. Michael McLintock stepped down from the Board on 6 June 2016. The bonus shown above was paid in respect of his service as an Executive Director.
  3. Anne Richards was appointed to the Board on 7 June 2016. The bonus shown above was paid in respect of her service as an Executive Director.
  4. In addition to the Annual Incentive Plan, Barry Stowe also participates in the Jackson bonus pool (see below).
John Foley Chief Executive, UK and Europe £750,000 180% 94.2% £1,271,000
Penny James Group Chief Risk Officer £606,000 160% 99.2% £962,000
Michael McLintock2 Chief Executive, M&G £398,000 600% 66% £920,000
Nic Nicandrou Chief Financial Officer £711,000 175% 99.3% £1,236,000
Anne Richards3 Chief Executive, M&G £400,000 600% 100% £1,368,000
Barry Stowe4 Chairman & CEO, NABU US$1,111,000 160% 99.3% US$1,765,000
Mike Wells Group Chief Executive £1,081,000 200% 99.5% £2,151,000
Tony Wilkey Chief Executive, PCA HK$8,890,000 180% 94.6% HK$15,138,000
2016 Jackson bonus pool

In 2016, the Jackson bonus pool was determined by Jackson’s profitability, capital adequacy, remittances to Group, in-force experience, ECap solvency ratio and credit rating. Across all these measures Jackson delivered strong performance. As a result of this performance the Committee determined that Barry Stowe’s share of the bonus pool was US$5,318,000.

Disclosure of targets and achievement for the 2015 Annual Incentive Plan

The level of performance required for threshold, target and maximum payment against the Group’s 2015 Annual Incentive Plan financial measures and the results achieved are set out below.

Targets and achievement for the 2015 Annual Incentive Plan

The Board believes that, due to the commercial sensitivity of the business unit targets, disclosing further details of these targets may damage the competitive position of the Group.

Update on performance against targets for awards made in 2015 and 2016 under the Prudential Long Term Incentive Plan

As at 31 December 2016, Prudential’s TSR performance during the periods 1 January 2015 to 31 December 2016 and 1 January 2016 to 31 December 2016 was ranked below median.

As at 31 December 2016, Prudential’s IFRS operating profit performance during the periods 1 January 2015 to 31 December 2016 and 1 January 2016 to 31 December 2016 was above the stretch targets for Group and all business units other than one which was between plan and the stretch target.

Remuneration in respect of performance periods ending in 2016

Long-term incentive plans with performance periods ending on 31 December 2016

Our long-term incentive plans have stretching performance conditions that are aligned to the strategic priorities of the Group. In deciding the portion of the awards to be released, the Committee considered actual financial results against these performance targets. The Committee also reviewed underlying Company performance to ensure vesting levels were appropriate. The Directors’ remuneration policy contains further details of the design of Prudential’s long-term incentive plans.

Prudential Long Term Incentive Plan (PLTIP)

In 2014, all Executive Directors were granted awards under the PLTIP. The awards were subject to challenging targets. The weightings of these measures are detailed in the table below.

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  Weighting of measures
Executive Director Group TSR1 IFRS profit
(Group or business unit)2

Notes

  1. Group TSR is measured on a ranked basis over three years relative to peers.
  2. IFRS profit is measured on a cumulative basis over three years.
Michael McLintock 100%
Jackie Hunt 50% 50% (business unit target)
Barry Stowe 50% 50% (business unit target)
Mike Wells 50% 50% (business unit target)
All other Executive Directors 50% 50% (Group)

Under the Group TSR measure, 25 per cent of the award vests for TSR at the median of the peer group increasing to full vesting for performance within the upper quartile. TSR is measured on a local currency basis since this has the benefit of simplicity and directness of comparison. The peer group for the awards is:

Aegon Aflac AIA AIG
Allianz Aviva AXA Generali
Legal & General Manulife MetLife Munich Re
Old Mutual Prudential Financial Standard Life Sun Life Financial
Swiss Re Zurich Insurance Group    

Prudential’s TSR performance during the performance period (1 January 2014 to 31 December 2016) was between the median and upper quartile of the peer group (ranked ninth). The portion of the awards related to TSR which therefore vested was 41.7 per cent.

Under the IFRS measure, 25 per cent of the award vests for meeting the threshold IFRS profit set at the start of the performance period increasing to full vesting for performance at or above the stretch level. The table below illustrates the cumulative performance achieved over 2014 to 2016 compared to the Group targets set in 2014:

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  2014-16 cumulative targets  
Group Threshold Plan Maximum   2014-16 cumulative achievement   Overall vesting
IFRS operating profit £8,525m £9,472m £10,419m   £11,449m   100%

The Committee determined that the cumulative IFRS operating profit target established for the PLTIP should be expressed using exchange rates consistent with the reported disclosures. All the individual business units exceeded their stretch performance target and achieved 100% vesting, other than Asia which exceeded plan performance, but not the stretch target, and therefore vested at 95%. Details of business unit IFRS targets have not been disclosed as the Committee considers that these are commercially sensitive and disclosure of targets at such a granular level would put the Company at a disadvantage compared to its competitors. The Committee will keep this disclosure policy under review based on whether, in its view, disclosure would compromise the Company’s competitive position.

M&G Executive Long-Term Incentive Plan

The phantom share price at vesting for the 2014 M&G Executive Long-Term Incentive award is determined by the increase or decrease in M&G’s profitability over the three-year performance period with adjustments for the investment performance of its funds. M&G performance and the resulting phantom share price for Michael McLintock are shown below:

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Award 3-year profit growth of M&G 3-year investment performance 2016 phantom share price Value of awards vesting
2014 M&G Executive LTIP 7% Second quartile £1.60 £1,577,398

Prudential Corporation Asia Long-Term Incentive Plan

Tony Wilkey received awards under the PCA Long-Term Incentive Plan before he was appointed to the Board, which vested during 2016. The PCA Long-Term Incentive Plan does not have performance conditions.

2016 LTIP vesting

The Committee considered a report from the Group Chief Risk Officer which confirmed that the financial results were achieved within the Group’s and business units’ risk framework and appetite. On the basis of this report, and the performance of the Group and its business units described above, the Committee determined the vesting of each executive’s LTIP awards as set out below.

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Executive Director Maximum value of award at full vesting1 Percentage of the LTIP award vesting Number of shares/ADRs vesting2 Value of shares vesting1

Notes

  1. The share price used to calculate the value of the LTIP awards with performance periods which ended on 31 December 2016 and vest in 2017 was the average share price/ADR price for the three months up to 31 December 2016, being £14.86/$37.02.
  2. The number of shares vesting includes accrued dividend shares.
  3. This does not include the vesting of Michael McLintock’s M&G Executive Long-Term Incentive Plan award, and has been pro-rated to reflect Michael’s service during the performance period.
  4. Tony Wilkey’s awards include an award that vested on 23 September 2016 (the share price on that date was £14.08) in addition to the awards that vests in 2017.
John Foley £2,515,958 70.8% 119,872 £1,781,298
Penny James £490,380 70.8% 23,364 £347,189
Michael McLintock3 £707,039 41.7% 15,707 £233,406
Nic Nicandrou £2,144,163 70.8% 102,158 £1,518,068
Barry Stowe £1,710,546 68.3% 42,748 £1,168,303
Mike Wells £3,559,849 70.8% 92,220 £2,520,373
Tony Wilkey4 £1,035,757 100%/68.3% 64,254 £918,013

Pension entitlements

Pension provisions in 2016 were:

Executive Director   2016 pension arrangement   Life assurance provision

Barry Stowe

 

Pension supplement of 25 per cent of salary, part of which is paid as a contribution to an approved US retirement plan.

 

Two times salary

Tony Wilkey

 

Pension supplement in lieu of pension of 25 per cent of salary and a HK$18,000 payment to the Hong Kong Mandatory Provident Fund.

 

Four times salary

UK-based executives

 

Pension contribution to defined contribution plan and/or pension supplement in lieu of pension of 25 per cent of salary.

 

Up to four times salary plus a dependant’s pension

Michael McLintock previously participated in a contributory defined benefit scheme that was open at the time he joined the Company. The scheme provided a target pension of two-thirds of final pensionable earnings on retirement for an employee with 30 years or more potential service who remained in service to normal retirement date. Michael is a deferred member of the scheme and his normal retirement date under the scheme is age 60. If Michael claims his deferred pension before this age it will be subject to an actuarial reduction and there are no additional benefits payable should he retire early. At the end of 2016, the transfer value of Michael’s entitlement was £1,505,483. This equates to an annual pension of £59,662 which will increase broadly in line with inflation in the period to Michael’s retirement at the normal retirement date.

John Foley previously participated in a non-contributory defined benefit scheme that was open at the time he joined the Company. The scheme provided an accrual of 1/60ths of final pensionable earnings for each year of pensionable service. John is a deferred member of this scheme and, on reaching the normal retirement date (of 60), John has elected to defer payment of his pension. At the end of 2016, the transfer value of John’s entitlement was £555,662. This equates to an annual pension of £19,937, based on current late retirement factors. The pension, once in payment, will be subject to statutory increases in line with the Consumer Prices Index.

Performance graph and table

The chart below illustrates the TSR performance of Prudential, the FTSE 100 and the peer group of international insurers used to benchmark the Company’s performance for the purposes of the PLTIP.

Prudential TSR v FTSE 100 and peer group averages – total return, per cent over eight years to 31 December 2016

Prudential TSR v FTSE 100 and peer group averages – total return, per cent over seven years to 31 December 2016 graph

Note

The peer group average represents the average TSR performance of the peer group used for 2016 PLTIP awards (excluding companies not listed at the start of the period).

The information in the table below shows the total remuneration for the Group Chief Executive over the same period:

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£000 2009 2009 2010 2011 2012 2013 2014 2015 2015 2016

Notes

  1. Mark Tucker left the Company on 30 September 2009. Tidjane Thiam became Group Chief Executive on 1 October 2009. The figures shown for Tidjane Thiam’s remuneration in 2009 relate only to his service as Group Chief Executive.
  2. Tidjane Thiam left the Company on 31 May 2015. Mike Wells became Group Chief Executive on 1 June 2015. The figures shown for Mike Wells’s remuneration in 2015 relate only to his service as Group Chief Executive.
Group Chief Executive M Tucker1 T Thiam T Thiam T Thiam T Thiam T Thiam T Thiam T Thiam2 M Wells M Wells
Salary, pension and benefits 1,013 286 1,189 1,241 1,373 1,411 1,458 613 1,992 2,224
Annual bonus payment 841 354 1,570 1,570 2,000 2,056 2,122 704 1,244 2,151
(As % of maximum) (92%) (90%) (97%) (97%) (100%) (99.8%) (100%) (77.3%) (99.7%) (99.5%)
LTIP vesting 1,575 2,534 2,528 6,160 5,235 9,838 3,702 4,427 2,520
(As % of maximum) (100%) (100%) (100%) (100%) (100%) (100%) (100%) (100%) (70.8%)
Other payments 308
Group Chief Executive Single Figure of total remuneration 3,737 640 5,293 5,339 9,533 8,702 13,418 5,019 7,663 6,895

Percentage change in remuneration

The table below sets out how the change in remuneration for the Group Chief Executive between 2015 and 2016 compared to a wider employee comparator group:

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  Salary Benefits Bonus
Group Chief Executive +14.8% (32%) (33.3%)
All UK employees +3.4% (6.2%) (2.8%)

The employee comparator group used for the purpose of this analysis is all UK employees. This includes employees in the UK insurance operations business, M&G and Group Head Office, and reflects the average change in pay for employees employed in both 2015 and 2016. The salary increase includes uplifts made through the annual salary review as well as any additional changes in the year; for example to reflect promotions or role changes. The UK workforce has been chosen as the most appropriate comparator group as it reflects the economic environment where the Group Chief Executive is employed. The Group Chief Executive’s salary increase reflects his promotion from President & CEO, Jackson to Group Chief Executive during 2015. With effect from 1 January 2016, the Group Chief Executive’s salary increased by 1 per cent.

Relative importance of spend on pay

The table below sets out the amounts payable in respect of 2015 and 2016 on all employee pay and dividends:

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  2015 2016 Percentage change

Note

  1. All employee pay as taken from note B7 to the financial statements.
All employee pay (£m)1 1,475 1,885 27.80%
Dividends (£m) 1,253 1,122 (10.45%)

Long-term incentives awarded in 2016

2016 share-based long-term incentive awards

The table below shows the awards made to Executive Directors in 2016 under share-based long-term incentive plans and the performance conditions attached to these awards:

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  Weighting of performance conditions
Executive Director Role Number of
shares or
ADRs
subject to
award*
Face value of award Percentage of awards released for achieving threshold targets End of performance period Group
TSR
IFRS profit
Group Asia US UK

* Awards over shares were awarded to all Executive Directors other than Barry Stowe whose awards were over ADRs.

† Awards for Executive Directors are calculated based on the average share price over the three dealing days prior to the grant date. Other than for Anne Richards, awards were granted on 1 April 2016 (based on a share price of £12.99 and an ADR price of US$37.29).

‡ The percentage of awards released for achieving maximum targets is 100 per cent.

Note

  1. PLTIP awards made to the Chief Executive, M&G are subject only to the TSR performance condition. The IFRS profit of M&G is a performance condition under the M&G Executive LTIP. Anne Richards’s award was granted on 23 June 2016 following her appointment to the Board (based on an average share price of £13.07).
John Foley Chief Executive, UK and Europe 144,340 £1,874,977 25% 31 December 2018 50%     50%
Penny James Group Chief Risk Officer 116,628 £1,514,998 25% 31 December 2018 50% 50%      
Nic Nicandrou Chief Financial Officer 136,836 £1,777,500 25% 31 December 2018 50% 50%      
Anne Richards1 Chief Executive, M&G 45,906 £600,000 25% 31 December 2018 100%        
Barry Stowe Chairman & CEO, NABU 137,050 £3,772,770 25% 31 December 2018 50%     50%  
Tony Wilkey Chief Executive, PCA 153,742 £1,997,109 25% 31 December 2018 50%   50%    
Mike Wells Group Chief Executive 332,870 £4,323,981 25% 31 December 2018 50% 50%      

Group TSR performance will be measured on a ranked basis. 25 per cent of the award will vest for TSR performance at the median of the peer group increasing to full vesting for performance at the upper quartile. The peer group for 2016 awards is the same as for 2014 awards as detailed above.

Performance ranges for IFRS operating profit measured on a cumulative basis over three years are set at the start of the performance period. Due to commercial sensitivities these are not published in advance but Group targets will be disclosed when awards vest.

2016 cash long-term incentive awards

In addition to her PLTIP award, in 2016 Anne Richards received a cash-settled award under the M&G Executive LTIP detailed below:

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Executive Director Role Face value of award (% of salary) Face value
of award
Percentage of award released for achieving threshold target End of performance period

Note

The value of the award on vesting will be based on the profitability and investment performance of M&G over the performance period as described in the Directors’ remuneration policy.

Anne Richards Chief Executive, M&G 300% £1,200,000 See note 31 December 2018

Buy-out award

In order to facilitate Anne Richards’s appointment as Chief Executive, M&G, the Company agreed to replace the deferred bonus awards she forfeited on leaving Aberdeen Asset Management. The terms of the replacement award were designed to replicate those of the forfeited awards and are therefore not subject to performance conditions and will accrue dividend equivalents. These awards entitle Anne to receive a cash amount equal to the market value of the specified notional number of Prudential shares on the date of exercise, less an award price of 5p per share. The award will vest on the dates detailed below. The market value of Prudential plc shares on the date of the award (23 June 2016) was £13.22.

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Exercise period Number of notional shares
1 December 2016 to 1 January 2017 59,086
1 December 2017 to 1 January 2018 39,810
1 December 2018 to 1 January 2019 25,078
1 December 2019 to 1 January 2020 25,078
1 December 2020 to 1 January 2021 13,426

In December 2016, Anne exercised the first tranche of this replacement award. The gross value of the award exercised (which included dividend equivalents) was £939,140 and Anne used the net of tax value of £496,162 to buy 31,439 Prudential shares.

This buy-out award was made under rule 9.4.2 of the UKLA Listing Rules as the award could not be effected under any of the Company’s existing incentive plans. Anne is the sole participant in this arrangement and no further awards will be made to Anne under the arrangement.

Chairman and Non-executive Director remuneration in 2016

Chairman’s fees

The Chairman’s fee was reviewed by the Committee during 2016 and increased by 3 per cent to £720,000 with effect from 1 July 2016 in order to reflect the expansion of the Chairman’s role to include oversight of the chairmen of the Group’s four material subsidiaries and inflation.

Non-executive Directors’ fees

The Non-executive Directors’ fees were reviewed by the Board during 2016 and the basic fee was increased by 1 per cent to £95,000. Additionally, the fee for chairing the Audit Committee was increased by 7 per cent to £75,000 and the fee for chairing the Risk Committee was increased by 15 per cent to £75,000, to reflect the expanded scope of these roles which now includes more formal oversight of the material subsidiaries’ Audit and Risk Committees.

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Annual fees From
1 July 2015
(£)
From
1 July 2016
(£)

Note

If, in a particular year, the number of meetings is materially greater than usual, the Company may determine that the provision of additional fees is fair and reasonable.

Basic fee 94,000 95,000
Additional fees:    
Audit Committee Chairman 70,000 75,000
Audit Committee member 27,500 27,500
Remuneration Committee Chairman 60,000 60,000
Remuneration Committee member 27,500 27,500
Risk Committee Chairman 65,000 75,000
Risk Committee member 27,500 27,500
Nomination Committee member 10,000 10,000
Senior Independent Director 50,000 50,000

The resulting fees paid to the Chairman and Non-executive Directors are:

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£000s 2016 fees 2015 fees 2016 taxable benefits* 2015 taxable benefits* Total 2016 remuneration: ‘The Single Figure’ Total 2015 remuneration: ‘The Single Figure’

* Benefits include the cost of providing the use of a car and driver, medical insurance and security arrangements.

† Each remuneration element is rounded to the nearest £1,000 and totals are the sum of these rounded figures. Total remuneration is calculated using the methodology prescribed by Schedule 8 of the Companies Act. The Chairman and Non-executive Directors are not entitled to participate in annual bonus plans or long-term incentive plans.

Notes

  1. Alistair Johnston stepped down from the Board on 19 May 2016.
  2. Kai Nargolwala also received an annual fee of £250,000 (payable in HK$) in respect of his non-executive chairmanship of Prudential Corporation Asia Limited with effect from 1 February 2016.
  3. Philip Remnant also received an annual fee of £250,000 in respect of his non-executive chairmanship of M&G Group Limited with effect from 1 April 2016.
  4. Lord Turnbull retired from the Board on 14 May 2015.
Chairman            
Paul Manduca 710 650 121 78 831 728
Non-executive Directors            
Howard Davies 202 195 202 195
Ann Godbehere 205 200 205 200
Alistair Johnston1 47 120 47 120
David Law 122 36 122 36
Kai Nargolwala2 150 146 150 146
Anthony Nightingale 165 147 165 147
Philip Remnant3 210 206 210 206
Alice Schroeder 122 120 122 120
Lord Turnbull4 70 70
Lord Turner 122 36 122 36
Total 2,055 1,926 121 78 2,176 2,004

Statement of Directors’ shareholdings

The interests of Directors in ordinary shares of the Company are set out below. ‘Beneficial interest’ includes shares owned outright, shares acquired under the Share Incentive Plan and deferred annual incentive awards, detailed in the ‘Supplementary information’ section. It is only these shares that count towards the share ownership guidelines.

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  1 January 2016 (or on date of appointment) During 2016 31 December 2016
(or on date of retirement)
Share ownership guidelines
  Total beneficial interest (number of shares) Number of shares acquired Number of shares disposed Total beneficial interest* (number of shares) Number of shares subject to performance conditions Total interest in shares Share ownership guidelines (% of salary/fee) Beneficial interest as a percentage of basic salary/basic fees§

* There were no changes of Directors’ interests in ordinary shares between 31 December 2016 and 13 March 2017 with the exception of the UK-based Executive Directors due to their participation in the monthly Share Incentive Plan (SIP). John Foley acquired a further 35 shares in the SIP, Nic Nicandrou acquired a further 35 shares in the SIP and Mike Wells acquired a further 35 shares in the SIP during this period.

† Further information on share awards subject to performance conditions are detailed in the ‘share-based long-term incentive awards’ section of the Supplementary information.

‡ Holding requirement of the Articles of Association (2,500 ordinary shares) must be obtained within one year of appointment to the Board. The increased guidelines for Executive Directors were introduced with effect from January 2013. Executive Directors have five years from this date (or date of joining or role change, if later) to reach the enhanced guideline. The guideline for Non-executive Directors was introduced on 1 July 2011. Non-executive Directors have three years from their date of joining to reach the guideline. The Chairman has five years from the date of his role change to reach the guideline. Where applicable, all Directors are in compliance with the share ownership guideline.

§ Based on the average closing share price for the six months to 31 December 2016 (£14.19).
The Company and its Directors, Chief Executives and shareholders have been granted a partial exemption from the disclosure requirements under part XV of the Securities and Futures Ordinance (SFO). As a result of this exemption, Directors, Chief Executives and shareholders do not have an obligation under the SFO to notify the Company of shareholding interests, and the Company is not required to maintain a register of Directors’ and Chief Executives’ interests under section 352 of the SFO, nor a register of interests of substantial shareholders under section 336 of the SFO. The Company is, however, required to file with the Hong Kong Stock Exchange any disclosure of interests notified to it in the United Kingdom.

Notes

  1. John Foley was appointed to the Board on 19 January 2016.
  2. Michael McLintock stepped down from the Board on 6 June 2016.
  3. Anne Richards was appointed to the Board on 7 June 2016.
  4. For the 1 January 2016 figure Barry Stowe’s beneficial interest in shares is made up of 123,328 ADRs (representing 246,656 ordinary shares), (8,513.73 of these ADRs are held within an investment account which secures premium financing for a life assurance policy). For the 31 December 2016 figure the beneficial interest in shares is made up of 132,939 ADRs (representing 265,878 ordinary shares).
  5. For the 1 January 2016 figure Mike Wells’s beneficial interest in shares is made up of 232,594 ADRs (representing 465,188 ordinary shares) and 97 ordinary shares. For the 31 December 2016 figure his beneficial interest in shares is made up of 218,576 ADRs (representing 437,152 ordinary shares) and 107,382 ordinary shares.
  6. Alistair Johnston stepped down from the Board on 19 May 2016.
  7. For the 1 January 2016 and 31 December 2016 figure Alice Schroeder’s beneficial interest in shares is made up of 4,250 ADRs (representing 8,500 ordinary shares).
Chairman                
Paul Manduca 42,500 42,500 42,500 100% 85%
Executive Directors                
John Foley1 218,644 215,696 184,375 249,965 422,480 672,445 200% 473%
Penny James 14,500 42,859 15,787 41,572 171,255 212,827 200% 97%
Michael McLintock2 210,884 122,728 134,143 199,469 79,498 278,967 200% n/a
Nic Nicandrou 265,219 180,757 141,838 304,138 373,328 677,466 200% 607%
Anne Richards3 31,439 31,439 45,906 77,345 200% 112%
Barry Stowe4 246,656 255,646 236,424 265,878 553,532 819,410 200% 460%
Mike Wells5 465,285 418,559 339,310 544,534 811,178 1,355,712 350% 715%
Tony Wilkey 189,592 168,387 237,451 120,528 383,635 504,163 200% 202%
Non-executive Directors                
Howard Davies 8,730 319 9,049 9,049 100% 136%
Ann Godbehere 15,914 15,914 15,914 100% 239%
Alistair Johnston6 10,000 10,000 10,000 100% n/a
David Law 3,327 3,577 6,904 6,904 100% 104%
Kaikhushru Nargolwala 50,000 20,000 70,000 70,000 100% 1,051%
Anthony Nightingale 30,000 30,000 30,000 100% 450%
Philip Remnant 5,816 1,100 6,916 6,916 100% 104%
Alice Schroeder7 8,500 8,500 8,500 100% 128%
Lord Turner 2,000 3,500 5,500 5,500 100% 83%

Disclosure of interests of Directors

Outstanding share options

The following table sets out the share options held by the Executive Directors in the UK Savings-Related Share Option Scheme (SAYE) as at the end of the period. Anne Richards holds share options under her buy-out arrangement, details of which are set out in the Long-term incentives awarded in 2016.

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  Date of grant Exercise price (pence) Market price at 31 Dec 2016 (pence) Exercise period   Number of options
Beginning End Beginning of period Granted Exercised Cancelled Forfeited Lapsed End of period

Notes

  1. A gain of £49,028.33 was made by Directors in 2016 on the exercise of SAYE options.
  2. No price was paid for the award of any option.
  3. The highest and lowest closing share prices during 2016 were £16.49 and £10.87 respectively.
  4. All exercise prices are shown to the nearest penny.
  5. Michael McLintock participated in the plan during his time as an Executive Director. The column above marked ‘End of period’ reflects Michael McLintock’s position at his date of retirement.
John Foley 20 Sep 13 901 1,627.5 01
Dec
16
31 May 17   998 998
John Foley 23 Sep 14 1,155 1,627.5 01
Dec
17
31 May 18   779 779
John Foley 21 Sep 16 1,104 1,627.5 01
Dec
19
31 May 20   815 815
Penny James 21 Sep 12 629 1,627.5 01
Dec
15
31 May 16   858 858
Penny James 22 Sep 15 1,111 1,627.5 01
Dec
18
31 May 19   1,620 1,620
Michael McLintock 23 Sep 14 1,155 1,627.5 01
Dec
19
31 May 20   2,622 2,622
Nic Nicandrou 16 Sep 11 466 1,627.5 01
Dec
16
31 May 17   3,268 3,268
Nic Nicandrou 23 Sep 14 1,155 1,627.5 01
Dec
19
31 May 20   1,311 1,311
Nic Nicandrou 21 Sep 16 1,104 1,627.5 01
Dec
21
31 May 22   1,358 1,358
Anne Richards 21 Sep 16 1,104 1,627.5 01
Dec
19
31 May 20   1,630 1,630
Mike Wells 22 Sep 15 1,111 1,627.5 01
Dec
18
31 May 19   1,620 1,620

Directors’ terms of employment and external appointments

The Directors’ remuneration policy contains further details of the terms included in Executive Director service contracts. Details of the service contracts of each Executive Director are outlined in the table below.

Subject to the Group Chief Executive’s or the Chairman’s approval, Executive Directors are able to accept external appointments as non-executive directors of other organisations. Fees payable are retained by the Executive Directors.

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  Service contracts   External appointment
Date of contract Notice period to the Company Notice period from the Company External appointment during 2016 Fee received in the period the Executive Director was a Group Director

Other Directors served on the boards of educational, charitable and cultural organisations without receiving a fee for these services.

Notes

  1. John Foley was appointed to the Board on 19 January 2016.
  2. Anne Richards was appointed to the Board on 7 June 2016.
Executive Directors            
John Foley1 8 December 2010 12 months 12 months  
Penny James 1 April 2016 12 months 12 months   Yes £67,000
Nic Nicandrou 26 April 2009 12 months 12 months  
Anne Richards2 4 July 2016 12 months 12 months  
Barry Stowe 18 October 2006 12 months 12 months  
Mike Wells 21 May 2015 12 months 12 months  
Tony Wilkey 1 June 2015 12 months 12 months  

Letters of appointment of the Chairman and Non-executive Directors

The Directors’ remuneration policy contains further details on Non-executive Directors’ letters of appointment. Details of their individual appointments are outlined below:

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Chairman/Non-executive Director Appointment by the Board Initial election by shareholders at the AGM Notice period Expiry of the current term of appointment

Notes

  1. Paul Manduca was appointed as Chairman on 2 July 2012.
  2. Ann Godbehere was reappointed in 2016 for one year.
Chairman        
Paul Manduca1 15 October 2010 AGM 2011 12 months AGM 2018
Non-executive Directors        
Philip Remnant 1 January 2013 AGM 2013 6 months AGM 2019
Howard Davies 15 October 2010 AGM 2011 6 months AGM 2017
Ann Godbehere2 2 August 2007 AGM 2008 6 months AGM 2017
David Law 15 September 2015 AGM 2016 6 months AGM 2019
Kai Nargolwala 1 January 2012 AGM 2012 6 months AGM 2018
Anthony Nightingale 1 June 2013 AGM 2014 6 months AGM 2017
Alice Schroeder 10 June 2013 AGM 2014 6 months AGM 2017
Lord Turner 15 September 2015 AGM 2016 6 months AGM 2019

Recruitment arrangements

In making decisions about the remuneration arrangements for those joining the Board, the Committee worked within the Directors’ remuneration policy approved by shareholders and was mindful of:

  • The skills, knowledge and experience that each new Executive Director brought to the Board;
  • The need to support the relocation of executives to enable them to assume their roles; and
  • Its commitment to honour legacy arrangements.

Appointing high-calibre executives to the Board and to different roles on the Board is necessary to ensure the Company is well positioned to develop and implement its strategy and deliver long-term value. As the Company operates in an international marketplace for talent, the best internal and external candidates are sometimes asked to move location to assume their new roles. Where this happens, the Company will offer relocation support. The support offered will depend on the circumstances of each move but may include paying for travel, shipping services, the provision of temporary accommodation and other housing benefits. Executives may receive support with the preparation of tax returns, but no current Executive Director is tax equalised.

Anne Richards joined the Board during the year and, as this resulted in Anne relocating to enable her to assume her role, relocation support in line with the approved Directors’ remuneration policy was provided. In addition, on joining the Company, Anne forfeited share awards granted to her by her previous employer and a buy-out award in line with the approved Directors’ remuneration policy was provided. Details of this relocation support and the buy-out award are included in the notes to the 2016 Single Figure table and in the section on long-term incentives awarded in 2016.

Payments to past Directors and payments for loss of office

The Committee’s approach when exercising its discretion under the policy is to be mindful of the particular circumstance of the departure and the contribution the individual made to the Group.

Michael McLintock

Michael McLintock stepped down from the Board on 6 June 2016. His remuneration arrangements were in line with the approved Directors’ remuneration policy, and disclosed in stock exchange announcements, and the remuneration he received in respect of his services as an Executive Director is set out in the 2016 Single Figure table.

Michael’s employment with the Group ended on 31 July 2016 and between 7 June and 31 July he received £76,024 in respect of salary, benefits and pension in accordance with his contract of employment. In line with market practice, the Group paid the professional legal fees incurred by him in respect of finalising his termination arrangements, which amounted to £7,800. In addition, in consideration of agreeing to a confidentiality clause, Michael received £1,000. Michael did not receive a loss of office payment.

Michael’s deferred bonus awards will be released in accordance with the plan rules and remain subject to malus and, for the 2015 award, clawback provisions.

Recognising his contribution to the Company’s success, the Committee determined that Michael should be awarded a bonus in respect of the 2016 performance year which was calculated in the usual way and pro-rated for service to 31 July 2016. 60 per cent of this bonus will be paid in 2017 and 40 per cent will be deferred for three years, subject to malus and clawback provisions.

The Committee also exercised its discretion in accordance with the approved Directors’ remuneration policy and determined that Michael should be allowed to retain his unvested PLTIP and M&G LTIP awards granted in 2014 and 2015. The 2014 and 2015 awards will vest in accordance with the original timetable, subject to the original performance conditions, remain subject to malus and, for the 2015 award, clawback provisions, and were pro-rated for service. Michael did not receive a 2016 long-term incentive award.

Jackie Hunt

As reported in the 2015 Directors’ remuneration report, Jackie Hunt stepped down from the Board on 3 November 2015 and her employment with the Group ended on 30 June 2016. During 2016, Jackie received £441,352 in respect of salary, benefits and pension benefits in accordance with her contract of employment. In addition, in consideration of agreeing to a confidentiality clause, Jackie received £1,000. In line with market practice, the Group paid the professional legal fees incurred by Jackie in respect of finalising her separation arrangements which amounted to £600 in 2016.

2014 PLTIP award vesting

Pierre-Olivier Bouée, Tidjane Thiam and Jackie Hunt’s employment with the Group ended on 30 June 2015, 31 May 2015 and 30 June 2016, respectively. The 2015 Directors’ remuneration report provided details of the remuneration arrangements that would apply to Pierre-Olivier, Tidjane and Jackie after they left the Board. As set out in the section ‘Remuneration in respect of performance in 2016’ the performance conditions attached to Pierre-Olivier, Tidjane and Jackie’s 2014 PLTIP awards were partially met and 70.8 per cent of these awards will be released in 2017. These awards were pro-rated for service (15 of 36 months, 14 of 36 months and 27 of 36 months, respectively) and the details of the release are set out below.

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Former Executive Director Number of shares vesting1 Value of share vesting2

Notes

  1. The number of shares vesting includes accrued dividend shares.
  2. The share price used to calculate the value was the average share price for the three months up to 31 December 2016, being £14.86.
Pierre-Olivier Bouée 39,319 £584,280
Jackie Hunt 65,114 £967,594
Tidjane Thiam 98,890 £1,469,505

Other Directors

A number of former Directors receive retiree medical benefits for themselves and their partner (where applicable). This is consistent with other senior members of staff employed at the same time. A de minimis threshold of £10,000 has been set by the Committee; any payments or benefits provided to a past Director under this amount will not be reported.

Statement of voting at general meeting

At the 2014 Annual General Meeting, shareholders were asked to vote on the current Directors’ remuneration policy and at the 2016 Annual General Meeting, shareholders were asked to vote on the 2015 Directors’ remuneration report. Each of these resolutions received a significant vote in favour by shareholders and the Committee is grateful for this support and endorsement by our shareholders. The votes received were:

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Resolution Votes for % of votes cast Votes against % of votes cast Total votes cast Votes withheld
To approve the Directors’ remuneration policy (2014 AGM) 1,745,240,139 91.85% 154,778,305 8.15% 1,900,018,444 46,152,673
To approve the Directors’ remuneration report (2016 AGM) 1,714,488,665 92.80% 132,967,991 7.20% 1,847,456,656 159,010,106

Statement of implementation in 2017

Executive Directors

Executive Directors’ remuneration packages were reviewed in 2016 with changes effective from 1 January 2017. When the Committee took these decisions, it considered the salary increases awarded to other employees in 2016 and the expected increases in 2017. The external market reference points used to provide context to the Committee were identical to those used for 2016 salaries.

All Executive Directors, other than the Chief Executive, M&G and the Group Chief Risk Officer, received a salary increase of 2 per cent. The Chief Executive, M&G received no salary increase and the Group Chief Risk Officer received a salary increase of 5 per cent. The 2017 salary increase budgets for other employees across the Group’s business units were between 2.5 per cent and 6 per cent. No changes have been made to executives’ maximum opportunities under either the annual incentive or the long-term incentive plans.

In 2017, the AIP performance measures have been simplified from seven to four measures and Executive Directors’ 2017 bonuses will be determined by the achievement of IFRS operating profit, operating free surplus, NBP EEV profit and cash flow, which are aligned to the Group’s growth and cash generation focus. This reflected the Committee’s objective to simplify the AIP metrics.

As part of the continuing implementation of Solvency II, the weightings of Penny James’s AIP performance targets (with effect from 2017) have been changed so that her entire AIP outcome relates to a combination of functional and personal measures.

As detailed in the new Directors’ remuneration policy, all long-term incentive awards made to Executive Directors in 2017 will be made under the PLTIP. The vesting of these awards will depend on:

  • Relative TSR (25 per cent of award);
  • Group or business unit IFRS profit (50 per cent of award); and
  • Balanced scorecard of strategic measures (25 per cent of award).

As part of the continuing implementation of Solvency II, the weightings of Penny James’s LTIP performance targets (with effect from 2017) will be different to the other Executive Directors and will be:

  • Relative TSR (50 per cent of award);
  • Group IFRS profit (20 per cent of award); and
  • Balanced scorecard of strategic measures (30 per cent of award).

Under the Group TSR measure, 25 per cent of the award vests for TSR at the median of the peer group increasing to full vesting for performance within the upper quartile. Following a comprehensive review of the peer group, supported by the Remuneration Committee’s independent adviser and the Group’s Investor Relations team, three companies (Aflac, Munich Re and Swiss Re) have been removed for the 2017 awards because their products and geographic footprints are insufficiently similar to those of the Group.

TSR is measured on a local currency basis since this has the benefit of simplicity and directness of comparison.

The peer group for the 2017 awards is:

Aegon Aviva AIA AIG
Allianz Manulife AXA Generali
Legal & General Prudential Financial MetLife Sun Life Financial
Old Mutual Zurich Insurance Group Standard Life

Under the IFRS measure, 25 per cent of the award vests for meeting the threshold IFRS profit set at the start of the performance period increasing to full vesting for performance at or above the stretch level.

Under the balanced scorecard, performance is assessed for each of the four measures, at the end of the three year performance period. Each of the measures has equal weighting and these measures are set out below.

Capital measure

Cumulative three-year ECap Group operating capital generation relative to plan, less cost of capital (based on the capital position at the start of the performance period).

Vesting basis: 100 per cent vesting for achieving plan, otherwise 0 per cent vesting. The plan figure for this metric will be published in the Annual Report for the final year of the performance period.

Capital measure

Cumulative three-year Solvency II Group operating capital generation (as captured in published disclosures) relative to plan.

Vesting basis: 100 per cent vesting for achieving plan, otherwise 0 per cent vesting. The plan figure for this metric will be published in the Annual Report for the final year of the performance period.

Conduct measure

Through appropriate management action, ensure there are no significant conduct/culture/governance issues which result in significant capital add-ons or material fines.

Vesting basis: 100 per cent for achieving the Group’s expectations, otherwise 0 per cent vesting.

Diversity measure

Percentage of the Leadership Team that is female at the end of 2019. The target for this metric will be based on progress towards the goal that the Company set when it signed the Women in Finance Charter, specifically that 30 per cent of our Leadership Team will be female at the end of 2021. For this portion of PLTIP awards made in 2017 to vest, at least 27 per cent of our Leadership Team must be female at the end of 2019.

Vesting basis: 100 per cent vesting for achieving the target, otherwise 0 per cent vesting.

Chairman and Non-executive Directors

Fees for the Chairman and Non-executive Directors were reviewed in 2016 with changes effective from 1 July 2016 as set out above. The next review will be effective 1 July 2017.

As referred to in the report of the Nomination and Governance Committee, the appointment of a Chairman of the Board of a material subsidiary (Jackson National Life Insurance Company) has been agreed. The Remuneration Committee has approved a fee of £250,000 per annum, fixed for a period of two years from the date of the appointment. This fee will be payable in US dollars and is the same as the fee agreed for the chairmen of the boards of Prudential Assurance Company Limited, M&G Group Limited and Prudential Corporation Asia Limited. In addition, the Remuneration Committee has approved a basic fee of £70,000 per annum for membership of the boards of these material subsidiaries, a fee for membership of the audit or risk committees of £10,000 per annum and a fee for chairing those committees of £30,000 per annum.

Signed on behalf of the Board of Directors

Anthony Nightingale, CMG SBS JP
Chairman of the Remuneration Committee
13 March 2017

Paul Manduca
Chairman
13 March 2017

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